Harvey Norman reduces interest-free lures

By Eli Greenblat

July 26, 2009 — 10.00pm

RETAILER Harvey Norman has begun weaning itself off its popular no-deposit, interest-free deals offered through GE Money as the company seeks more stable income streams and consumers shun excessive debt.

Executive chairman Gerry Harvey said his stores, which have a 25-year relationship with GE, had already started to pull back on promotional activity surrounding the incentives, which can sometimes stretch out to as long as four years before customers have to pay for their purchases.

"We have actually reduced our interest-free offers over the last 12 months, because we are just trying to survive without everything being on interest-free," Mr Harvey told BusinessDay.

"I'd love to do business with no interest-free [deals] but that's not possible."

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The relationship has been a huge success to date for Harvey Norman and American financial giant General Electric, which owns GE Money. Since 2004, GE Money has furnished 1.5 million Harvey Norman customers with $3.8 billion worth of interest-free packages.

Harvey Norman released its full-year sales results last week, reporting sales of $6.03 billion for 2008-09, up 3.8 per cent on the $5.81 billion posted in 2007-08. Sales for the final quarter of 2009 increased 4.5 per cent to $1.49 billion, with like-for-like sales growth of 2 per cent.

The retailer said turnover "fell off a cliff" in the beginning of 2008 as the global financial crisis soured the enthusiasm of consumers for electricals, housewares, computers and plasma televisions.

Figures released by the Reserve Bank this month show that the average credit card balance stood at $3093 in May, up from $3080 in April. But the average credit card balance has fallen by 0.5 per cent over the past year  only the second fall since records began more than 14 years ago. The number of purchases made on credit cards in May was up just 0.3 per cent on a year ago.

CommSec estimates that average Australian per capita wealth, made up of property, shares and other investments, has fallen $33,500 since the global financial crisis began to just under $217,000.

Mr Harvey said Harvey Norman has been doing fewer interest-free deals since 2008.

"Where we were doing something for two years we might have cut it back to one year, we would do three two-year [interest-free deals] in a row, now we do three one-year [deals] in a row," he said. "We don't want to be all interest-free, it's not a good way to be if you can help it. If you had your choices, you'd rather not."

It's a conviction shared by Woolworths chief executive Michael Luscombe. The country's leading retailer only offers a very limited interest-free deal in its Dick Smith electronics chain.

"Someone has to pay, so either the customer pays a lot more for a product upfront or somehow someone other than the customer subsidises it. There is no free lunch in this."

Skander Malcolm, managing director of retail solutions for GE Money, said the company was very pleased with its relationship with Harvey Norman and that 70 per cent of customers came back for return purchases.

"The relationship is in a great state and we are happy with it," Mr Malcolm said.

He said GE Money was down slightly on the number of promotions it had run with the retailer in 2009 against 2008.

"What he [Gerry Harvey] has been doing is, and we have all been doing quite deliberately, is how do we reduce Harvey Norman's costs but keep up good customer benefits?"

Mr Malcolm said together with Harvey Norman, GE Money had altered the number and length of its interest-free deals.

GE Money works with 12,000 retailers across Australia, including Harvey Norman, RetraVision and Woolworths.

"What we are seeing is the smaller ones are definitely doing less promotions and their volumes are definitely down year on year," Mr Malcolm said .